Analysts project lucrative pot market in Massachusetts

THE ISSUE: Massachusetts is preparing for legal marijuana sales in 2018.

THE IMPACT: According to some projections, the state could see $1.2 billion in pot sales and $240 million in tax revenue by 2021.

Gerry Tuoti Wicked Local Newsbank Editor

Nascent cannabis industry analysts see major potential for the Massachusetts marijuana market, and the government is poised to cash in as well.

Legal pot sales, which are expected to begin next July, are projected to reach $1.2 billion statewide by 2021, bringing in approximately $240 million in state and local tax revenue, according to multiple analyses.

New Frontier Data, a cannabis industry analytics firm based in Washington, D.C., forecasts $450 million in Massachusetts marijuana sales in 2018, with sales figures gradually climbing each year as the fledgling industry gains traction. Under that projection, legal pot sales in Massachusetts would generate $90 million in taxes the first year.

“That’s assuming a relatively smooth rollout of the regulatory infrastructure and assumes demand will build over time through greater participation in a regulated space, and that people will feel comfortable with cannabis in their communities,” said Beau Whitney, a senior economist for New Frontier.

The analysis, in part, includes pot-use rates reported by the National Institutes of Health.

“There’s already the demand there,” Whitney said. “It’s more a matter of converting it over from the illicit market.”

Massachusetts voters legalized the adult use of marijuana by approving a ballot question in last November’s election. That ballot question called for a maximum effective tax of 12 percent on marijuana sales, but lawmakers later increased the tax rate to 20 percent. The bill signed into law in July includes a 6.25 percent state sales tax and a 10.75 percent excise tax. Communities can then impose an addition of up to 3 percent tax on marijuana sales.

The Department of Revenue issued an analysis in March examining potential sales and tax revenue scenarios, including potential outcomes under the effective 12 percent tax rate that was still on the table at that time. Under the 12 percent tax, the DOR projected first year sales could range from $375 million to $696 million, and by fiscal 2020 would reach a range of $747 million to $1.38 billion.

The March 9 analysis didn’t include projections under a 20 percent effective tax rate, but forecast that under a rate of 22 percent, fiscal 2020 cannabis sales would be approximately $1 billion, with a projected low of $716 million and a high of $1.33 billion.

Whitney said states should take a careful approach when setting tax rates. If taxes are too high, consumers will continue buying pot on the illicit market, he said.

Among other states to legalize marijuana, Colorado has an effective tax rate of 30 percent, while Washington state has a 37 percent excise tax on pot. Oregon’s marijuana sales tax is 17 percent, while both Nevada and California each have a 15 percent sales tax on pot.

In Massachusetts, the state’s newly formed Cannabis Control Commission is expected to begin meeting weekly and is preparing to embark on a statewide listening tour in October as it begins to lay the regulatory groundwork for the legal marijuana industry.

Tom Adams, of ArcView Market Research, said that in addition to seeing $1.2 billion in sales by 2021, his organization projects that the legal cannabis industry will generate $2.3 billion in total economic activity in Massachusetts, including nearly 17,400 pot industry jobs statewide.

Given the high population density and close distances between states in the Northeast, Adams anticipates that cross-border sales could be more of phenomenon in Massachusetts than in Western states that have legalized marijuana.

Massachusetts is one of eight states to legalize the use of marijuana by adults 21 and older.

“States that are dragging their feet on this are kidding themselves,” he said. “In 10 years, it’s hard to imagine there will be much state prohibition left, or even federal prohibition.”